DEVELOPMENT OF A COMPUTER BASED MANAGEMENT
INFORMATION SYSTEM

John David Cicio

STGRADOATE SC

ey, California

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DEVELOPMENT OF
COMPUTER BASED MANAGEMENT
INFORMATION SYSTEM

by

John David Cicio

Thesis

Advisor: J.

W.

Crei

ghton

December 1972

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Development of

a Computer Based Management

Information System

by

John David Cicio
Lieutenant, Supply Corps, United States Navy
B.S., Holy Cross College, 1961

Submitted in partial fulfillment of the
requirements for the degree of

MASTER OF SCIENCE IN COMPUTER SYSTEMS MANAGEMENT

from the

NAVAL POSTGRADUATE SCHOOL
December 1972

Library

Naval Postgraduate School

Monterey, California 93940

ABSTRACT

Management information is of critical importance in modern
decision making. The role of the computer in this process is rapidly
expanding, creating challenging goals for data processing specialists
and functional area specialists alike. A totally integrated computer
based management information system requires long term planning
and design effort coupled with detailed analysis of information system
requirements. This paper suggests a new relationship between the
time value of information and management decision making.

TABLE OF CONTENTS

I. INTRODUCTION 5

A. THE NEED 5

B. THE PROBLEM 6

C. OBJECTIVES 7

II. THEORY 8

A . DECISION MAKING 8

B. THE ROLE OF THE COMPUTER 9

C. INFORMATION SYSTEMS IN GENERAL 10

D. TYPES OF INFORMATION SYSTEMS 11

E. AN INTEGRATED SYSTEM 13

F. BRIDGING THE MANAGEMENT GAP 15

III. SYSTEM DEVELOPMENT 17

A. THE ROLE OF MANAGEMENT 17

B. INFORMATION REQUIREMENTS 18

C. THE SPECIFIC MIS 18

D. PRE-PLANNING PHASE 20

E. PRELIMINARY DESIGN 23

F. DETAILED DESIGN 26

G. EQUIPMENT SELECTION AND ACQUISITION 26

1. Preliminary Facts 26

2. Lease versus Buy 28

3. Contract Administration 32

4. Formation of ADPESO 34

5. Five Steps of Computer Procurement 35

6. Government Regulations 38

7. Conclusions 40

H. INSTALLATION AND CONVERSION 42

I. TEST AND EVALUATION 44

IV. THE VALUE OF DATA/INFORMATION 47

A. INTRODUCTION 47

B. BACKGROUND 47

C. RELATIONSHIP BETWEEN INFORMATION

AND MANAGEMENT 53

D. THEORY OF VALUE 56

E. TIME VERSUS VALUE 59

F. POSITION FOR THE FUTURE 61

V . CONCLUSION 63

A. TOTAL SYSTEMS APPROACH 63

B. FUTURE 64

APPENDIX A 67

BIBLIOGRA PHY 73

INITIAL DISTRIBUTION LIST 75

FORM DD 1473 76

I. INTRODUCTION

A. NEED

When computer systems became recognized as a definite require-
ment for the future, there were very few skilled people able to provide
the expertise needed to expand with the industry. Consequently many
people with varied backgrounds entered the field and obtained formal
education in data processing techniques. Others -obtained their know-
ledge by associating with trained personnel or by on the job instruction.
Regardless of the avenues leading to the positions of seniority in the
data processing field, there still does not exist a generation in top
management grounded in the modern techniques of computer science
from its elementary levels of education.

Because of the varied backgrounds of all those presently involved
in data processing management it is difficult to find a text on the subject
of management information systems that appeals to a majority. The
success of some of the implemented management information systems
has proven, beyond question, the value of these systems and the fact
that the designs are more than conceptual possibilities. The success
of the information system will contribute greatly to the success of the
large organizations of the future.

It is for these reasons that it was determined that a single source
was required that would consolidate the total requirements imposed in

the formation, installation and implementation of a computer based
management information system.

B. PROBLEM

Managers have historically been promoted based upon their past
records of success and discharged because of failure. However, if
questioned, even the most successful probably would be hard pressed
to explain how he knew when he was making a proper decision. An
innate feeling for "the right thing" at times might have been influenced
by a severe case of indigestion.

The days of management by intuition are fast fading, if not totally
gone, in today's competitive business world. The computer has both
assisted and hindered many managers in their quest for success.
Those that it helped the most were those that were able to understand
the way the computer worked and the new requirements imposed. A
problem had to be broken down into infinites imally small parts each
to be able to be resolved on a "go, no-go" decision. Logic had to be
examined and tested. Vast quantities of information were made avail-
able to assist in making decisions and those that weren't able to use
it lost a competitive edge.

The key to managerial success in the present automated environ-
ment lies in being able to collect, quantify, retrieve and effectively
use the information available in the decision making process.

C. OBJECTIVES

It is the intent of this discourse to approach the topic of decision
making by examining the methodology involved so that even the decision
maker who is not expert in data processing techniques can better under-
stand the importance of being able to explain how he makes a decision.

It will be shown that through a complete understanding of how an
information system works, what its component parts are, and the
requirement for involvement by all levels in the design stage, that
the manager will be provided with the means to make more effective
decisions .

A discussion of the stages of building a management information
system should provide a reference or guide for those who are presently
involved or who will be involved in future information system develop-
ment.

In general, by explaining automated systems requirements in
terms of well-grounded and accepted management principles and
explaining the basic relationships, a method should evolve for the
executive to become more at ease and familiar with computerized
information systems.

II. THEORY

A. DECISION MAKING

Information processing is a fundamental activity of management.
It plays a central role in all phases of managerial behavior, in com-
munication, problem solving, and decision making. The requirements
for processing information in modern organizations stem from several
sources: the external environment, such as legal systems, customers
and suppliers, routine operating activities and management decision
and control. Increasingly, over the last ten years, information
processing support for management decision and control functions
has become the primary concern for those involved in data processing
and data base design.

Decision making is the primary management prerogative of the
management functions. Certain common characteristics of decision
making entail:

1. A compulsion.

2. Comprehension of the situation.

3. Consideration of all relevant factors.

4. Confirmation of objective.

5. Choice of alternative.

6. Communication of the choice.

7. Consequences of the choice, [l]

This subdivision of decision making elements serves several purposes,
It affords a basis for distinguishing the line and staff aspects of the
process. It is also a basis for determining the utility of electro-
mechanical equipment and electronic computers as accessory tools
to the decision making process. Finally, it serves to emphasize the
distinction between data processing as an administrative supporting
service, and sophisticated information systems, as the indispensable
modern servant of top management.

In reflection on the seven characteristics of the decision making
process, the three middle elements are particularly significant.
Consideration, confirmation, and choice have traditionally been
conceived of as secret processes that occur internally in the mind of
managers.

B. ROLE OF THE COMPUTER

Management can choose to make the decision rules visible.
Computers provided the first real capability that could be harnessed
with the specific intention of supplementing the mind of management.
The computer's ability to swiftly make calculations contributing to
comparisons leading toward an optimal solution is unique.

The computer can be an effective adjunct to management's
decision making, however, only if the manager provides effective
guidance for programming. This includes the ranking of objectives
and sub-objectives, the identification of fixed factors and variables,

and some quantified ranking of all relevant decision factors. The
manager in effect thms injects the answer into the computer, but as
though it were in code. The computer interprets it. Without the
benefit of management's objectives and constraints the computer could
grind away at raw data forever without arriving at an intelligible
conclusion.

C. INFORMATION SYSTEMS IN GENERAL

All functions of management are essentially mental, not physical,
with the possible exception of the action step. A primary objective of
management is to organize a complex of individuals to perform these
functions. These individuals will have intelligence, knowledge, and
creative imagination and will be able to add to this knowledge without
outside stimulation. However, the total knowledge required to manage
adequately, exceeds this.

In any large and complex enterprise, management's collective
brain must be supplemented. No man can acquire all the necessary
experience or knowledge to manage most effectively. Moreoever,
management seldom sees or touches the resources being managed.
Thus this collectively organized group needs a management information
system to serve every step of the management cycle at all organizational
levels.

10

D. TYPES OF INFORMATION SYSTEMS

There is not one specific system envisioned when the general
term of Management Information System is mentioned. Today many
people have their own definitions. Following are brief descriptions
of four basic types.

1. Formal/automated.

This type of information system is always the most sophis-
ticated, where the machine is more the worker and the man more the
designer, director, observer, or user. Electronic computers with
all of the associated hardware to complement and connect them are
involved in a full blown automatic data processing system.

2. Formal/non-automated.

This system includes all those conventions, procedures,
media, that are formally prescribed, legally required, or by habit
adhered to; but which are implemented either manually or with minor
equipment. The predominant effort is clerical.

3. Informal/formal.

This system could well be a more powerful informational
system in the key management sphere than any other output of any part
of the entire management information system. This is the product of
organized advisory staff work; the formal staff meeting where problems
are discussed; the work of formally chartered groups such as a board of
directors.

11

4. Informal/informal.

A system of this sort can be information passed at a cocktail
party, a network of personal letters, the grapevine, or any other
system of information exchange. This is included because to some
extent it does carry information and influence management decisions.

As dissimilar as these four systems might be, they have as a
common bond four types of management information or intelligence
requirements:

1. Operating document data - This is the most menial
but important type of information which must be
supplied by a management information system. It
is administrative in nature, and without it audit
trails would disappear, and general chaos might
ensue.

2. Resources or inventory data - This pertains to the
resources as of a given date. It also relates to
inventory allowances, authorizations or allocations,
budgets and accounts. Along with any inventory of
requirements, information has to be available on the
resources which may be used to achieve the objective.

3. Progress and performance appraisal data - Appraisal
information includes ratios, variances, trends and
the like, so that management can make sensible and

12

timely adjustments to programs, allocations,
and schedules, to find more rational selections
of alternative actions.
4. Decision making data - This comprises futuristic
data. Objectives formulation and clarification,
board strategy, limits and latitudes of risk, all
feasible alternatives and implications of each
alternative, probable consequences, etc. It is
fundamentally that information which top manage-
ment wants, needs and uses. It is directly propor-
tional to top management's previously accumulated
relevant knowledge. The real management significance
of this information is essentially a function of top
management's ultimate acting responsibilities.

E. AN INTEGRATED SYSTEM

An integrated information system is one in which all data will
enter the system only once, in a universally accepted standard coding
and simultaneously with its creation. The same data elements will
be in no more different places in the system than vulnerability and
relative economy of communications make desirable.

' The advantages of such a system are many. It provides the
means for specific information being taken care of immediately. It
can be made to constantly compare goals to actuality, and have

13

automatic output of either a mechanical control decision or an exception
requiring attention. It could also provide all significant ramifications
of possible intentions entered as a query to the system. Finally, the
system could include the means to receive a given set of requirements
and quickly produce optimal plans from various parameters to obtain
desired results; it could maximize (and/or minimize) whatever the
interrogator desires. All this is envisioned on a real time basis and
with almost instantaneous and intelligible visual display of status or
action required. Such a system should be the only legitimate goal for
a truly worthwhile management endeavor involving substantial invest-
ment in sophisticated computers.

While many agree that this is the goal, not everyone agrees on
the method to achieve it. On one hand, some believe that the proper
approach is to start at the bottom and work up. A process of integrat-
ing by stages at each management echelon until complete integration
finally materializes at the apex of the organizational pyramid.

Conversely, others say that the best way to ensure the ultimate
integration is to provide for highest management level leadership of
the program. Only in this way can the inevitable prediliction for
provincialism be precluded. After all, only the manager can input
the proper sense of direction, and provide the unified overall purpose
that transcends the specific functional areas . (or so the proponents
say)

14

So it appears that the two most popular approaches are in
opposition. The two methods are not incompatible and are equally-
vital to success. The real distinction to be made is not with respect
to the relative level of their point of origin, but to their essential
purposes, which are quite different. As will be pointed out in the
ensuing text, the value of information in the decision making process
might also have an impact on the shape of future organizations.

F. BRIDGING THE MANAGEMENT GAP

Top management's job is to specify goals, establish standards,
and identify ultimate management information needs. Concurrently,
appropriate subordinate levels of line management survey available
data in relation to specified information needs, commencing at the
very source of such data, and thus proceed to design a responsive
system. At this point the evident need for a coordinating staff in the
management information system development clearly emerges.

The major objective of this staff is to relieve and serve top
management in bridging the gap between top level planning and
subordinate level design.

The development of a management information system (referred
to hereafter as MIS) can only proceed by rather clear cut stages.
Specifically, system design control can be expected to gravitate in
due course from the field activity level, to the departmental level,

15

to the headquarters level. This progressive escalation upward is
considered the key to the successful integration of all subordinate
information systems.

Whereas centralized leadership throughout the first stages may
be characterized by coordinative influences and the provision of only
broad policy and general guidance, it must be replaced by more
stringent controls for information system design at the outset of the
final stage.

16

III. SYSTEM DEVELOPMENT

A. THE ROLE OF MANAGEMENT

Management's role is to provide a product or service of value to
society in return for a profit. The manager, in order to attain that
goal works in an environment of competition for profit. Competitive
strategies are constantly changing because of the changes in the
demands of society and rapid technological advances. With such a
state of flux, the process of management becomes a large feedback
control device. Even in military management where the "profit"
motive is not the technical goal, first an objective is set, or some
future condition of the organization which is desired by management
is established, and the means by which this objective is to be obtained
is determined. To facilitate the determination, such a device is
evolved; a device which gathers and reports necessary information
relative to the progress the organization is making in achieving its
objectives. Normally, the device provides information as to why an
established schedule is not being met.

What is within the realm of information that might be desired?
As Edward D. Dwyer put it, "Information is management information
only to the extent to which the management needs or wants it; and it is

17

significant to him only in terms of its relation to his accumulation of

1
relevant knowledge and plans and to his personal responsibility. "

B. INFORMATION REQUIREMENTS

What type of information must such a system provide? First,
there must be information which measures and describes objects and
actions in adequate detail for effective planning, action, review, and
control at all levels within the organization. Information relative to
fixed plans, programs, resource allocations, schedules and other
predictions must also be provided. Information which enables manage-
ment to make valid calculations and projections relative to future
organizational happenings is also necessary. Decision data is the
information which management wants, needs, and uses.

C. THE SPECIFIC MIS

Thus far the management environment has been examined and the
various possible information requirements have been determined. If
no system, or if only an inadequate one exists for providing this
information, it should now be obvious that some system such as this
must be developed. There are many degrees of sophistication involved.
The type and complexity of the system must be determined by the
manager or analyst in terms of his own organizational requirements
and structure.

McDonough, Adrian, Information and Management Systems ,
p. 67, McGraw Hill, 1963.

18

One definition of a management information system can be found
in a statement by Mr. D. Ronald MacKenzie. "Information includes
all the data and intelligence that are needed to plan, operate and control
an enterprise. The task is then to: design a network of procedures
that will process raw data in such a way as to generate the information

required for management use, and implement such procedures in

2
actual practice. "

The major difficulty with a sweeping statement such as this is the
question, "How much is enough? " A definition such as this would give
a manager, "all the information he requires" without regard for limits
on what is reasonable and prudent. No manager can possibly evaluate
the entirety of information available prior to making a single decision.

There are four basic goals of management information systems.
The first is to deliver information when and where it is needed and to
do it in a timely and accurate manner. The second is to filter the
distribution of the information. The third is that the system should be
able to readily assemble information for special reports. The fourth
and final goal is that the system should execute, through its internal
log, as many controls as are feasible. This will enable management
to control by making decisions about exceptions rather than by every
incident.

2

Anderson, McDonald W. , "The What and Whereto . . . Management

Information Systems" Data Processing Yearbook, p. 105„ 1964.

19

Once a system designer has accepted the commitment of develop-
ing a management information system he must be willing to commit
his own time and interest towards the understanding of the detailed
plans, techniques, equipment and personnel associated with the pro-
posed system. A major system design effort requires a corps of
experienced systems personnel. Management must be willing to
acquire these personnel and provide the necessary training to enable
them to perform their jobs.

Finally, full support must be given to the systems design team
because it will enable them to solicit assistance from any segment
within the organization.

D. PRE-PLANNING PHASE

The first stage is to define the problem that you have to solve, in
clear and succinct terms. Mr. John Diebold is quoted as saying,
"Sometimes what we believe to be our problems are in reality symptoms,
the true problem lying far deeper. It is important that we do not try to
automate in order to tackle symptoms. A thorough systems analysis
and careful thinking through of objectives is the best way of defining
the true problem. At the same time an adequate system's study can

save management from the opposite, but equally serious mistake of

3
trying to make too fundamental a change in one pass. "

Dickey, E. R. , Senensieb, N. L. , MA Total Approach to Systems
and Data Processing" Total Systems , p. 26, 1965.

20

What is needed is not providing more volume of data for a
business concern, but rather a detailed and penetrating study of
the business in its entirety, so that only the information that is
truly needed is provided. Production of too much data for manage-
ment to assimilate is a major fault of many current MlS's. Business
must be examined in terms of an overall information system which
is, as defined earlier, a composite of inter-related systems and
sub-systems which are working toward a common goal. This is the
key concept to thorough systems analysis, the integration of the sub-
systems. Employing the systems approach, as defined earlier, for
solving or defining the problem is not a simple task. It consists
of four critical and unique steps.

1. Examination of the problem in terms of its environment.

2. Determination of the users information requirements.

3. Determination of the speed of response requirements.

4. Selection of the optimum combinations of mental efforts,
equipment and procedures within the cost restrictions,
established for the system. [2]

Upon completion of the preliminary information analysis and
actual problem definition, an economic analysis must then be made.
It would be very unwise to proceed any further in the systems design
without now determining whether the MIS is economically justifiable.
The process of economic justification is an extremely complex one.

21

Basic cost accounting procedures cannot be applied. This is because
of the lack of knowledge of the contents of the output of the system in
terms of dollar value.

However, we are not left entirely in the cold, for there has been
a system proposed for the determination of the economic justification
of an MIS. This system is based on efficiency, utilization, availability,
and operating speed. The most important and complex of these factors
is efficiency. [3]

As defined by Mr. Simon M. Newman, ". . . efficiency is a ratio
of the amount of pertinent information produced by the system to the

amount of pertinent information which existed in the original

4
documents. " The original documents make up the system's data

base, and achievement of 100% efficiency would be economically

unjustifiable.

Utilization is the ratio of the degree of actual system use to total
potential use of the system. Many managers simply do not use the
system because they don't know how.

Availability is a measure of the accessibility of the system to its
users. Availability is increased by designing the system, both the
hardware and the software, with its facilities close to the users.
Physical eye appeal must be considered also in relation to this point.

4
Newman, S. M. , "Economic Justification - Factors Establishing

System Costs", Information Retrieval Management, p. 117, 1962.

22

System operating speed can be called response time, which is
defined as the elapsed time from the point where the question enters
the system until the answer has been received by the user.

With preliminary systems analysis, problem definition and initial
economic considerations completed, alternate solutions will be
developed. Consequently, top management must bring the design team
up to strength in order to select the best solution and develop a master
plan.

E. PRELIMINARY DESIGN

Systems design is the most critical of all phases. A strong
information systems design team must be formed and given recognition,
responsibility and commensurate authority. Certain key personnel
must now be selected and the design team organized. Extreine care
must be exercised in the selection because the team will have total
responsibility for the entire design and implementation of the MIS,
and since their responsibilities are so vital, it is imperative that this
be their primary duty. Within this team there must be functional area
specialists, systems analysis specialists, and data processing
specialists. Without this background of experience, a faulty system
may be designed which could eventually prove to be very costly.

The team must approach the problem in a systematic manner.
The system designers must first interview all managers and decision
makers who will be contributing data or receiving information from

23

the proposed MLS. They must not ask the manager what additional
information he would like on his present reports, but must determine
the manager's area of responsibility, what types of decisions he makes,
and what information he needs to control his operation and make
effective decisions. Guides must be developed in reports which will
present only summary information about areas that are running accord-
ing to plan and more detailed information for those areas deviating
from programmed status or progress. They must strive to give the
manager only the information he needs to make decisions.

The system design team must then determine the basic types of
data to be fed into the system to produce the information required.
They must develop procedures for collecting each type of data at its
source, automatically if possible, and collect it only once. They
must also make sure of the validity and accuracy of the data gathered.
Based on the knowledge of the output and input requirements, the
systems analysts must design a computer system to collect the
required data and produce information as economically as possible.
(The distinction is made here between data and information. It will
not always be so. )

Inherent within the function of planning is the determination of the
feasibility of meeting directed due dates for the successful completion
or implementation of the system. The plan must be realistic in terms
of its requirements and, it must be consistent with available resources

24

and time. In developing this plan, the design team must include
efforts being accomplished at all levels within the organization. This
is necessary in order that the plan provide a coordinated and balanced
resource allocation.

The plan must be translated into a schedule. Scheduling must
consider the competition for available resources. The process of
scheduling must produce a calendar time-phased plan which is con-
sistent with desired completion dates for the assigned system objectives.
Once this is accomplished, the schedule becomes the means for au-
thorizing effort and resources to be expended. Additionally, the
schedule will serve as a basis for the continuous evaluation of the
overall design effort.

In order to evaluate the pogress of the overall system develop-
ment, management must receive feedback from the designers. It
must provide for early detection and specific description of any
potentially significant problem areas while there is still time to seek
solutions. Therefore a progress reporting system must be established.
This reporting system should contain the reasoning which led to the
selection of the particular design choice. It should also contain
information relative to resources required to accomplish the develop-
ment and implementation of this design. Each system and sub- system
should be described in terms of its functions and how it acts upon,
and what it does to the input of the system. The method and means

25

of developing the sub-systems and their specifications should also be
included. In total, the report should leave no doubt that the design
selected is the optimal and the most economical.

F. DETAILED DESIGN

During the detailed design phase, the actual accomplishment of
final design is performed. This phase is continuous and may last
as much as five years, depending on the complexity and scope of the
MIS under consideration. Since the results of the detailed design
phase take the form of specific system requirements, the progress
reporting during this phase should include information relative to the
status of the development of the specifications. This should not,
however, preclude the reporting of significant problems as they
occur in the development of the specification. Depending on the
nature of the problem incurred during this phase, the manager
may deem necessary that progress reporting occur more frequently
than originally anticipated.

G. EQUIPMENT SELECTION AND ACQUISITION
1. Preliminary Facts

A discussion of the advantages of automatic data processing
can be found in almost any technical trade journal these days. For
purposes of this study, it is proposed to focus on some disadvantages

26

of data processing equipment to bring into sharper focus some of the
reasons why computer procurement is considered so differently by
people in different professional areas.

The cost of installing and operating an automatic data
processing (ADP) system is of primary importance. A large scale
computer may cost about $800, 000 just for start-up costs and another
$750,000 for annual operating costs. Most usable systems with a
central processor and compatible input- output equipment have rentals
from $100,000 to $500,000 annually. [4] This represents a very large
investment for management and offers only a theoretical prospect of
return, and that, only after a considerable number of man-years
spent in analysis, planning, coding, conversion and the running of
parallel operations. Other difficulties that make computers unique
are (1) channeling of work. Since the organization's information has
to be fed through one piece of equpment this causes many machine
scheduling problems. Some of those problems have been mollified
with the techniques of multi-processing and multi-programming as
well as timesharing but the directing of the flow still poses a problem.

(2) conversion problems. Site preparation costs for power consumption
and air conditioning as well as conversion of source documents.

(3) training of personnel. Usually not accomplished on the same time
schedule as the installation of equipment. (4) organizational problems.
Resistance to change.

27

In summary very few other items that can be purchased have
such a far reaching effect and for that reason special techniques were
developed to accommodate the computer.

One such technique was the lease versus purchase criteria.
No firm policy guidance for the Executive branch of the Government
existed until 1961 when the Bureau of the Budget (now Office of
Management and Budget) published Circular A-54. [5]

In March of 1963 the Comptroller General sent a report to
Congress in which he recommended the establishment of an office in
the Executive Branch to make possible Government-wide decisions
on the financial advantages of purchasing, and to assure more complete
utilization of equipment. Most commercially available ADP equipment
can be acquired by purchase or lease, with or without an option to
purchase. [6]

2. Lease vs Buy

Section III, part 1 1 of the Armed Services Procurement
Regulation (ASPR) deals directly with the acquisition of automatic
data processing equipment. It says that prior to any decision to
lease ADP equipment, the contracting officer must conduct a review.
Such review to cover, but not be limited to five major points.

(1) Screen Defense Supply Agency (DSA) for any excess
government-owned equipment that would satisfy the
requirement.

28

(2) Determine if leasing policy is appropriate and
beneficial to the government.

(3) Consider leasing under provisions of the Federal
Supply Schedule Contract (ASPR 5-903. 1 "contractors
shall be authorized to use GSA (General Supply Agency)
supply sources . . . when the contractor will lease
ADPE under Federal Supply Schedule Contract for

use only in performance on cost reimbursable contracts. ")

(4) Include an option to include maximum rental credits
toward a future purchase.

(5) Obtain approval of top policy officials of the respective
service requesting the equipment.

This same article further states that if the total annual cost applies to
cost reimbursable contracts and the cost is over $500, 000 an initial
and annual review must be conducted to test the existing ADP capa-
bility and to verify the continuing need. Also any major changes to
the lease (over $25, 000) must have prior review of the Administrative

Contracting Officer.

I

Leasing has been predominant for several reasons. First,
the large initial outlay has been one factor. Also, the machines
produced by the largest manufacturer could not be purchased for
several years after the introduction of ADP equipment on the market.

29

One of the advantages of renting equipment is that the large
expenditure can be spread over several years and not distort the
budget for any one year. The increasing technology in the field has
rendered past eqviipment obsolete long before its useful life was
expended. Program changes which might decrease computer utiliza-
tion or eliminate the need for the installation or base, thereby making
leasing attractive.

On the other hand, the major objection to leasing is that
rental costs may exceed purchase costs if the equipment is leased
for eight or more years.

Another report put out by the Office of Management and Budget
states, "Although the number of purchased computers has increased
in each of the fiscal years reported, the percentage which this number
bears to the total number of computers has declined, except for a
slight increase in 1963. " It further states, "It may be expected that

there will be a greater proportion of purchase in the future as an

5
objective consideration of the alternatives is applied to each case. "

It is interesting to compare the prediction of August, 1962 with the

actual results and the figures of the ensuing years. Enclosure (1)

shows a predicted rate of 14.7 purchased computers to 85.3% leased

with a total of 1169 machines for 1963. This was extrapolating only

5
Inventory of ADP Equipment in the Federal Government

August, 1962, Bureau of the Budget.

30

one year into the future yet the actual figures show a relationship of
21.3% owned to 78.7% leased and a total of 132 6 machines. This
indicates that the original estimate was understated by approximately
15%. Additionally, the total number of machines for FY 1971 is
5961 (an 820% growth from 1961) with 72. 1% owned and 27. 9% leased.
A notation to the chart says, "the owned portion of the inventory has
reached 72%, reflecting further increases in the special or mini-
computers which are generally available only on a purchase basis,
and purchased due to their relatively low cost. Another major factor
has been the conversion of installed leased equipment to "owned" as a
result of the exercise of cqntractual purchase agreements. "

The importance of a standardized procurement policy can
be emphasized by showing the distribution of the computers solely
in the Department of Defense. Out of a total of 5961 the DOD has
close to 60% of the computers. [7]

Air Force 1271

Navy 1021

Army 949

DSA 128

OSD 12

Others. ...... 34

3415

There still remains a tendency, however, to rent and lease

computers even when the arithmetic clearly indicates that they should

31

be purchased. There are several reasons for this rental fixation:
(1) the annual budgetary and congressional appropriations system
favors the smaller rental figures as against the larger purchase
items. (2) Suppliers have been reluctant to sell their equipment.
(3) Agencies not technically equipped to manage ADP facilities have
preferred to turn most of their computer management over to the
suppliers, along with a rental contract. (4) In other cases agencies
have feared that a purchase commitment may later prove to be
shortsighted in view of the rapidly changing technology [8]

A general feeling about this subject that is shared by many
is described as follows: "EQUIPMENT LEASING IS SOMETHING LIKE
FREE LOVE . . . BOTH HAVE COST ADVANTAGES OVER OWNER-
SHIP OR MARRIAGE, BOTH INVOLVE RELATIONSHIPS THAT MAY
BE TERMINATED EASILY, BOTH ARE SUBJECT TO LEGAL
DIFFICULTIES NOT FOUND IN THE CONVENTIONAL ARRANGE-
MENT, BOTH ARE PROBABLY MORE TALKED ABOUT THAN
PRACTICED. " Walter Buckingham
3. Contract Administration

The Comptroller General reports show that overpayments
of hundreds of thousands of dollars have been made by agencies
because of failure to understand and properly administer contract
provisions that are used in determining rental payments. In some
instances poor record keeping procedures for recording equipment
utilization information had led to overpayment. Recently a

32

conceptual system has been put forth for proper reporting of ADP

■6

equipment and systems. It is intended to include the current

characteristics of technology. It is oriented toward the use of
equipment and systems more as a government resource than the
proprietary utilization within a single department or agency. Through
common standards for common equipment, it facilitates sharing of
utilization among departments and agencies. The highly complex
nature of the technology is recognized and the system includes
reporting for equipment managers who need to exchange system
enhancements for increased efficiencies and users to compare the
economics of using particular equipment configurations.

Contract administration will probably continue to be the
subject for general accounting office reports. Management must
exert considerable effort to correct the mistakes unearthed by the
examinations of previously uneconomical procedures. The following
list represents some of the significantly improved items that have
been obtained through contract negotiation. [9]

(1) Rental contracts for ADP were placed on a "use"
rather than an "availability" basis. Under the
former concept no extra shift rental is paid
until the equipment is actually used 176 hours
per month.

6
Ensign, R. B. , "A Conceptual System for Reporting Utilization

of ADP Resources", (DOD Computer Institute 1972).

33

(2) Equipment must perform fully and properly at a
90% effectiveness level for 30 days before rental
is paid.

(3) Liquidated damages were included for failure to
install the equipment by the specified date.

(4) Amount of program testing time was increased.
4. Formation of ADPESO

With regard to the contractual process the need for a cen-
tralized control was recognized when the Secretary of the Navy
established the Automatic Data Processing Equipment Selection
Office (ADPESO) on 1 July 1967. Prior to its establishment there
was no common system in use. The selection of ADPE was accom-
plished by the various heads of departmental components. The
procedures used varied depending on the philosophy of the head of
each of the departmental components. There was widespread use of
AD HOC committees that were formed as the need arose. The con-
tracting was conducted by a regular contracting officer not specif-
ically specialized in the procurement of ADPE.

The establishment of ADPESO thus accomplished two
significant advantages. First, the responsibility for selection of
ADPE was centralized. Secondly, a full time staff was hired to
carry out the mission of ADPESO. In addition to centralizing the
function, it was also elevated to a higher level in the Department of

34

the Navy. ADPESO is presently assigned as a field activity under
the command of the Chief of Naval Operations. Thus top management
attention is always focused on this vital function.

There are several significant benefits derived from this
organization. The most important is that the professional knowledge.
of each individual presently involved in the selection process is greater
now than was the case prior to 1967. This increased knowledge has a
profound impact on the Requests for Proposal (RFP) sent to vendors,
and the evaluation of proposals submitted by suppliers.

In the prior years, the specifications and RFP's prepared
by the user activities tended to be oriented toward a particular
manufacturer due to the lack of expertise of the individuals preparing
them. User personnel assist ADPESO in the appraisal process of
vendor's proposals, but this effort is still under the close control
and direction of ADPESO. Within the organization The Source Selection
and Evaluation Board is actually responsible for preparation of the
RFP and the review of all corresponding proposals. It is important to
note that this group is constituted for the entire life of equipment
acquisition. This comprehensive understanding of the user require-
ment coupled with specialized knowledge of the individuals on the
SSEB create a climate favorable to rational and objective evaluations.
5. Five Steps in Computer Procurement in ADPESO

(1) System Specifications. A standardized format and
extensive review prior to submission to vendors.

35

It is Navy policy to minimize the number of
mandatory requirements contained in each
specification. Every item classed as mandatory
is carefully reviewed. When justification does not
substantiate the claim, the item is reclassified as
' a desirable feature. This is done so that the specifica-
tions will not become so stringent as to either dis-
courage vendor participation or to cause an undue
number of proposals to be classified as non- responsive.

(2) Selection Plan. Detailed instructions that are used to
evaluate proposals submitted by vendors. This list
must be developed prior to issuing an RFP. By doing
this, greater objectivity is injected into the evaluation.

(3) Vendor Liaison. Any information provided to one
vendor is provided, in writing, to all others. All
rules provided to each supplier so he will know what
behavior is expected of him.

(4) Validation of Vendor Proposals. Verification of the
proposed system capabilities and validation of the
system timing. The Navy uses several sources of
data to verify the system capabilities. First, the
vendors are required to provide technical data in
their proposal. Second, ADPESO has manufacturers'
technical manuals and the Auerbach Standard EDP

36

reports. The primary method of evaluating system
timing is through benchmark programs where a certain
job must terminate at specific points and timing results
generated at each position. A more recently accepted

method currently in use at ADPESO is the use of

7
computer simulation. Utilization of a mathematical

model to create system conditions required. Depending
on the type of computer program you are testing, the
methods vary. Experience has proved that benchmarks
are the most reliable overall.
(5) Evaluation of Vendor Proposals. The method used by
the Navy is based on the cost-value technique. Other
methods available are the cost-effectiveness, and
weighted scoring techniques. The former does not
provide for the probability of the workload falling
below the projected reference workload line. In the
system in use the user indicates a projected rate of
growth and then assigns a probability to the levels
above and below the trend line. The main advantage
when contrasting the Cost-Value, and the Weighted
Scoring method systems is that the results are ex-
pressed in dollars instead of points. This way

7
Joslin, E. O. , Computer Selection, Addison Wesley Pub.

Co. , p. 105, 1968.

37

management can understand what is happening in the
evaluation process, but there is no real need for these
people to understand complex and technical data per-
taining to each proposal. By using the cost-value
system the cost and worth of desirable features can
be easily identified, which is very important in view
of the recent pricing policies of ADPE manufacturers
which will be covered later under the term "unbundling".
Managers who believe their organizations have a proven need
for ADPE, but who lack funds either for purchase or lease should
investigate the possibility of sharing equipment with other government
agencies in the local area or to acquire unused government-owned
equipment through the re-utilization program. Utilization figures
gathered by the military services and defense agencies indicate that
most computers are being used only on a two shift basis. This leaves
room for expansion that can be absorbed by any agency in the local
area with no equipment of their own. Additionally, the General
Services Administration publishes a periodic summary of all govern-
ment-owned equipment not presently being used that can be acquired
for only the cost of packing and transportation. Pertinent directives
are DOD INST 4160. 19M and SECNAVINST 10462. 17.
6. Government Regulations

The importance of proper and efficient procurement policy as
it relates to ADPE is exemplified by current regulations. Two items

38

in this category are, first, the so-called "Brooks Bill" (Public Law
89-306) which has as its purpose, "To provide for the economic and
efficient purchase, lease, maintenance, operation and utilization of
automatic data processing equipment in Federal Departments and
agencies". The second item is a memo from the former Deputy
Secretary of Defense, Mr. David Packard, dated 6 February 1970.
The subject is the Implementation and Expansion of Automatic Data
Systems. A pertinent paragraph states .... "further development,
implementation or expansion of automatic data systems will not be
undertaken vintil the services and agencies have critically reviewed
these systems. Until this review has taken place, no action will be
taken toward further acquisition of computers, including issuing an
RFP, entering into a contract or otherwise issuing an order for
computers, or committing substantial resources toward further
development or revision of automated data systems. " Pertinent
sections such as this appear throughout the document.

These and other articles of legislation led to the major
equipment manufacturers breaking down the heretofore "packaged"
computer systems. This came to be known as unbundling. What is
accomplished was to provide a cost breakdown of all parts of a
computer installation proposal. The hardware was priced separately
as was the programming, maintenance, peripheral units. It was
envisioned that this would allow smaller equipment manufacturers to
bid on portions of the total system to diversify the government's

39

holdings of the major manufacturer. In some cases it did this but a
side effect was to result in a higher overall cost of a total system,
because major suppliers were forced to raise their prices for portions
of a system since their previous pricing policy had been predicated
on total system procurement. Additionally, greater time and analysis
is required to evaluate the compatibility of different suppliers to the
major hardware configuration. Considerations in the procurement
process to get the best quality, from the best suppliers, at the best
price are best served by centralized procurement when the item
purchased is a computer system.

The government is cyclic in its policy toward centralization
and de-centralization of various activities. In the light of changing
technology or new information from other sources new decisions
need to be made. It didn't take long to realize that decentralized
procurement policy for computer systems required far more expertise
than was available. Established procurement methods and techniques
were not satisfactory in view of the large capital expenditures, the
rapidly advancing technology, and the long lead time between establish-
ment of specifications and systems delivery.
7. Conclusions

It should be evident at this time to anyone familiar with
government procurement policy and regulation, that data processing
requirements pose a particularly discrete set of problems. Some of
these have been addressed here and others have been referenced.

40

However, it is only the intent to establish the need for new procedures
for new technology not to educate a procurement technician.

In citing ASPR it becomes apparent that more emphasis was
given to the leasing arrangements with procurement (outright purchase)
policy referred to the top policy official of each service. In the case
of the Navy it is the office of ADPESO that is charged with the overall
coordination of ADPE requirements.

A major problem that has been at the base of many other
related problems is the fact that when one ADP system is replaced,
the new system is not compatible with the old one, even if it is from
the same manufacturer. Parts of this problem are being faced by
the government policy on standardization but that has at least two
decades to go before any far-reaching effects can be observed.
Another part of this problem stems from the fact that most people
are aggressive and want to keep up with the state of the art. The
technology of computers is so unlike anything else that this idea is
not only impractical, but in some cases foolhardy.

Technology has advanced at a rate far in excess of the
progress of the applications for that technology. Even the manufac-
turers are hard-pressed to get an 85% efficient utilization from some
machines. Therefore, when a headquarters hears of a new system
on the market and rushes in to buy it, only to have the latest equipment,
they are causing chain reactions in inefficiency too numerous to
mention here.

41

H. INSTALLATION AND CONVERSION

Considering that the design has been agreed upon, and the equip-
ment has been ordered, there are still many considerations that
require attention before the equipment is delivered and operational.
Location of the system is of primary significance, for if it is not
located convenient to the user and the operator alike, it will reduce
the efficiency of the MIS. This is not to say that the main frame of
the computer be located in the middle of a central work area, but
rather such things as remote inquiry terminals should be present in
major user areas. This type of access gives each user a virtual
computer of his own and he feels as though he is the sole user. A
consideration that must be reckoned with in relation to user accessibil-
ity is that of the funding of the annual expenses. The U. S. Depart-
ment of Agriculture obtains funds for the operation of its MIS directly
from the divisions using its services. Therefore, if a system is not
accessible, it is not popular, and if not popular it is unused, and then
unfinanced and eventually removed.

Even if a present system exists there is a real need to critically
examine the necessity for any major construction requirements. The
power consumption may vary from the present system, floor loading
capacity may change and air conditioning requirements may be greater,
It would be embarrassing to say the least, to be in the position of the
agency who went to all the trouble to get the proper power, revamping
the air-conditioning ductwork, restructuring the floor in the

42

installation site, only to find that while transporting their new system
from the freight elevator to the installation site, it fell through the
floor in the passageway. Additional weight requirements had not
been considered.

Another facet in planning for installation is the concept of system
security. It is a proven fact that emanations can be picked up and
translated by sophisticated apparatus as much as half mile from a
data processing site. Cost considerations are a major trade off in
this area because the most secure system in use today uses a com-
pletely copper shielded room with a double thickness of copper
sheeting sandwiching one foot of insulation.

Contingency plans must also be formulated for the event of a total
system breakdown. What sort of backup facilities are available?
Can they be used during prime shift hours? What type of emergency
files exist to be used to reconstruct data if it is lost. These are but
a few of the questions that have to be answered. The rest will make
themselves evident in the ensuing pages.

Regardless of whatever prior system existed the new MIS will
require some type of conversion. Admittedly, the less the better
because of the disruptions, but in some cases if there is little con-
version required, perhaps the old system is not being supplanted
but merely speeded up. There are three fundamental types of
conversion:

43

1. manual to automated

2. old computer to newer model

3. old computer to new manufacturer.

In each case there are specific problems uncommon to the other
cases. A conversion team should be established with membership
from each of the functional areas supported, as well as an expert
staff of data processing personnel. This team should have a detailed
knowledge of the current systems' requirements and objectives in
order to restate them in terms of the replacement system. They
should also set up test routines which can be used to prove the
accuracy of the new system in terms of the old, and vice versa.
After these test results have been evaluated and before the old system
is abandoned in favor of the new, a parallel operation can be conducted
using real data (as opposed to test data) to assure the compatibility
of results. This should be done only if it can be accurately deter-
mined that there is a requirement for it, since the cost considerations
of running both systems simultaneously are excessively high.

I. TEST AND EVALUATION

Once the new system is in operation, the test and evaluation
phase begins. This should be a continuing effort which seeks to take
advantage of any new developments as they occur. The quest for
determining information needs must be continued indefinitely. As
personnel within the organization become more familiar with the new

44

MIS and its capabilities, they will produce new ideas for extending
and modifying the system output. These ideas must be evaluated and,
where economical and feasible, be implemented. Since by this time
the design personnel will have acquired a great deal of experience
and, if the system was designed to be flexible, changes and improve-
ments to the system should be easy to accomplish.

During the evaluation process, a determination should be made
as to whether or not the MIS as designed actually fulfills its objec-
tives; the primary one to provide management with only the required
information.

The faults encountered in many of the computer based manage-
ment information systems of today result from hasty, inadequate and
improper systems analysis and design effort before actual program-
ming of the system was started and inadequate follow-up after the
system was implemented. One of the paramount faults of information
systems is that they present management with "data" not "information".
(Here a gross distinction is made between data and information which
was not made throughout) Many users of information systems, and
unfortunately many systems analysts, are familiar with the historical
way data has been collected and reports processed using punched card
equipment. Many of these ideas and attitudes from punched card
systems have been transferred to the design, development, and use
of present computer systems. They result in the design of a system
based on a series of simple data-handling steps of the kind which

45

can be carried out by the pxinched card process with a computer being
substituted for the electric accounting machine (EAM) instead of being
used to capacity.

This type of system completely fails to make use of most of the
advantages of a computer and ignores the new techniques of data
handling, evaluation and presentation that have been developed since
the advent of the computer. If an information system design for a
computer looks the same for punched card operation, the probability
is extremely high that the system, although designed for the computer,
makes poor use of the computer capabilities. It most likely costs
more than it should, and most important, it produces "data" instead
of "information".

46

IV. THE VALUE OF DATA/INFORMATION

A. INTRODUCTION

It has just been shown that the presence of two existing concepts
within a system can exist; data and information. If the system
receives data and has data as its output, it is not considered very
efficient. If it has data as an input and information as an output, it
is acceptable. However, a third situation exists wherein a system
might accept raw information as an input and output more precise
information.

An integrated system has been discussed from two sides; those
that believe it should start at the bottom of the managerial pyramid
and work up, and those that think it should start at the apex of the
triangle and work down. It will be proposed here that there are other
alternatives that might be considered as the possible shape for a
future organization. An integrated concept is that time is of basic
importance in the decision making process because of its impact on
the value of information.

B. BACKGROUND

In the late 1950's and early 1960's a flurry of articles appeared
forecasting radical changes in the management structures of organiza
tions by the 1980's. Most students of management generally believe

47

and accept the hypothesis that both management concepts and organiza.
tional structures are in a constant state of transition or evolution.
Since it is now almost the midway point between the forecasts and
the time of realization, it might be proper to assess just what is
going on.

The prediction of the state of management and the organizational
structures of the 1980's were widely varied and often in complete
opposition. [10] Figure 1 Appendix A shows the range of the
predictions. The traditional pyramidal organizational structure
stands in the middle; on either side are the extreme views. One
forecast was that the organization will evolve to the hourglass struc-
ture depicted on the right. The bulging pyramid on the left shows
the other extreme. Here we find an increase in the levels of manage-
ment, a relative increase in the number of middle managers, and a
relative increase in the number of skilled versus unskilled workers.
In the former "hourglass" structure there would be fewer levels of
management, an increase in the number of top managers, a decrease
in the number of middle management and a relative increase in the
number of skilled versus unskilled workers.

In addition to these extreme views there is also a group who
believe that the traditional pyramid structure will not change, with
the exception of an increase in the number of skilled versus unskilled
workers. That seems to be the only general point of agreement.
Which then, becomes the proper shape to expect? The arguments

48

for each side show that there will be no easy answer to the question.
The only answer it seems, lies mainly in the process of interpretation.
This is particularly true when it comes to interpreting the role that
the computer and quantitative analysis will play in the future.

The best arguments for the hourglass structure are represented
by Simon, Leavitt and Whistler. [11] The preponderance of arguments
revolve around three main predictions.

1. The increasing use of the computer will force a regrouping
of activities in the various functional divisions and at
various levels of the organization.

2. The computer will be used to process and make more and
more of the routine management decisions.

3. A shift to top management of a larger proportion of
innovating, planning, and creative functions with con-
comitant centralization of the decision making process.

Mr. Simon has made one very interesting point when he said that the
effect of automation may take place in some rather surprising areas.
He noted that the work of some people is much easier to automate
than others. Thus, those that think that they are immune to auto
mation because they are designers, and "thinkers", may receive
quite a shock.

Those who predict the bulging pyramid structure, do so, primarily
on two bases. First, they base their forecasts on an extrapolation of
the past. With the increased size and complexity of organizations,

49

the tendency in the past has been to increase the size of staffs and
all present levels of management, while also adding new levels of
management. These forecasts tend to believe, "that some managers

would rather live with a problem they can't solve than use a solution

8
they don't understand. " Secondly, Mr. Anshen and others of his

school believe that computers will be limited to repetitive decisions

based on already quantified records of costs or data. [12] This will

leave, relatively untouched, such managerial decisions as funding

problems, setting objectives, implementing decisions, and evaluating

results, all of which require a great deal of management information

and creative thinking.

More recently Chris Argyris has argued very persuasively that
the psychological impact of management information systems upon
managers is such that they will never accept the situation forecast by
Simon and his cohorts. [13] He further argues that management
science/operations research personnel are unprepared to deal with
the behavioral aspects needed to gain widespread acceptance of their
ideas.

Studies have proved that both the hourglass and bulging pyramid
are possible. Ida Hoos has found in her study of nineteen business
organizations that computer applications had radically changed the

o
Radar, Louis T. , "Will Management be Automated by 1975? "

Management Science, Vol. 14, July 1968.

50

organizational structure and the decision making process. [14] She
found that as more and more operations were programmed in the data
processing department, the functions of operating departments were
often undercut and truncated. This resulted in both a compression of
the number and levels of middle managers, while the power and
status of the new computer group grew.

Facts that would seem to disprove these points, such as those
proposed by Shaul and Jones, show that, ". . . the prophesised

demise of the middle manager, like the reported death of Mark Twain,

9
'had been greatly exaggerated. '. " In brief, these studies have not

borne out the more radical positions. They do show that there has

been a shift in the amount of time middle managers spend on individual

functions. They now do less controlling and more planning, staffing

and directing. More time is available for motivating, leading and

training (functions the computer cannot do).

In order to perform any meaningful trend analysis, it is necessary
to look at the current trends of some of the factors which will undoubt-
edly have an influence.

The changing age profile and general educational level increase
of the American working force should have several effects. First,
there will be a large influx of young, more highly educated workers

9Shaul, D. R. , "What's Really Ahead for Middle Management"
Personnel Magazine, Nov. -Dec. , 1964.

51

throughout the organization. This will have several effects, perhaps
the most significant of which will be those due to the greater flexibility
and desire for change inherent in the young. This will be reflected
in pressiires for greater automation, since the young, more highly
educated worker shuns the repetitive, undemanding work. Probably
it will also result in less support for unionism, since the young have
little vested interest in security.

Another effect of the changing age profile will be the significant
decrease in the number of available middle-aged managers, resulting
from the decline in the birth rate during the depression years. Middle
management will be composed of younger, better educated but less
experienced personnel. This lack of experience will probably be
reflected in building more checks and balances into the control
system.

The influence of greater education is probably the single most
important factor, since the trend of many other factors (such as
future uses of the computer) flow directly from it. Even among the
most disadvantaged, the average educational level is going up about
two years per generation.

These trends lead to a consideration of what effects the computer
will have. There is general agreement that the computers, with
their vast capacity to store and manipulate management information
will affect the process of managerial decision making. There is less

52

argument on the scope of the computer's potential in automating
decisions, and on the vulnerability of middle management to displace-
ment by computer programs.

Although the computer can be used as a tool to allow middle
management to make better decisions, it will only free the man to
make other progress in the management field.

C. RELATIONSHIPS BETWEEN INFORMATION AND MANAGEMENT

Management is the exercise of control through decision making.
Decision making is a result of information correlation. The process
includes assumptions to complete a picture formed by incomplete
information, then intuition. This requires an expenditure of manage-
ment energy with time as a limiting factor. Thus, information and
time are the utilities of management. Increasing quantities of
information requires increasing quantities of time for correlation,
or an increase of energy expended in the correlation. The qualitative
difference among management rests in the manner in which they use
their utilities. Martin Ernst has described the current situation:
"... we face the fact that management itself will become more
vulnerable in its decision making. As business uses more complex
decision making tools, and as it relies more heavily on large data
banks, there will be more filtering of information by management
staffs before materials for decisions are presented to the senior
management. Even today, a large fraction of the decisions of senior

53

managers are not made by them. They are forced on them by the
selectivity of their staffs in providing data and in presenting
arguments. As the staffs grow bigger and the data base more

complex, the filtering mechanism will expand and senior managers

10
will find it more difficult to exercise personal control. "

The complexity of management often causes decisions to be made
based on personal confidences rather than upon information processed,
This form of decision making has led to the myth of management
information systems and the reality of "group decision making".
Such informal management introduces parallel, and often conflicting
information systems.

The process of management has been shielded from true evalua-
tion by the accepted mystique of decision making and the security
offered by illusive information systems. Typically, management
has been viewed as a formal structure of decision points rather than
an interpersonal flow of information where the exercise of control
is an evolutionary process. Coordination and concurrence represent
a great number of such repetitive and routine decisions. These
types of decisions should be identified so that the information flow
could economically and routinely, serve them. The approach is,
at first, to recognize what is being controlled; second, to identify

luErnst, Martin L. , "Computers, Business and Society",
Management Review, AMA, V. 59, No. 11, p. 12, November 1970.

54

potential decisions; and third, to associate a value with the making
of each decision as a function of time and information requirements.

Decision time begins in response to new information. It ends
■with organizational commitment. Normally, the new information is
isolated and must be correlated with other information to present a
perspective. The correlation process takes time and energy which
conflict with the other pending decisions. Decisions are rarely those
acts of judgment when line and staff personnel are at the office door
•waiting to receive direction. Such occasions are usually the result
of extended delay in establishing position. More often, a decision
involves an evolution from a tentative position, either a stated
concern or a conceptual interest. Early recognition enables the
management system to function, increasing the certainty of the final
commitment. [15]

If the importance of new information could be immediately
recognized, an immediate commitment decision would have the
least impact upon the available resources. The low impact on
resources would give the decision a high value. Typically, a
decision must be compared with "research and development". The
new information must be investigated so that its potential impact
can be understood with a degree of confidence. Early recognition
allows review and revision of current, or proposed positions as the
management system correlates more information to the decision.

55

As in research and development, some delay in decisions based upon
the information evaluation, must be expected. Decreasing time for
implementation imposes a rising level of resource requirements.
At some point, the implementation of a decision, within the time
constraints, will exceed the available resources. That will severely
depress the value of the decision. Further delay will impose increas
ingly greater demands on resources until it will become questionable
whether the decision should be made or replaced. Thus a decision
can be seen to have a time of birth and an aging process until a time
of death, during which its value will continually diminish in an
inverse relationship to its impact on resources. (See Figure 2,
Appendix A)

D. THEORY OF VALUE

The value of information is established through its relationship
with a decision. New information has a low value because its
significance is unknown. Although an early decision is shown to
have a high value (Figure 3, Appendix A), uncertainty would cause
the decision maker to rely heavily upon assumptions and intuition.
Correlation with other information places the new information in
perspective. After some point in time, the decision maker ceases
his reference to the actual information and shifts to his assumptions.
The value of the information recedes. Later, the value increases
slightly as the information gains importance for historical purposes

56

and for trend analysis. Since this is a correlation process, the
quantity of information related to a decision varies with the value.
The demand grows geometrically until it exceeds the capacity or
desires of the decision maker. The human capacity for assimilating
quantities of variables is restricted. Unfortunately, technological
applications within recent years have enabled the system to deluge
the decision maker with quantities of information. This is not to
say that the information is used in making the decision. On the
contrary, more often, the processed information is rejected in
favor of personal confidence or the so-called "gut feeling. " The
"who" becomes more important than the "what" of the information.
This was the trap that was described by Ernst. [16]

Highly successful managers have repeatedly admitted that they
consider themselves successful if they are correct in more than 50%
of their decisions. Robert Townsend stated that, ". . . my batting
average on decisions at Avis was no better than 33%. " This

must be charged to the information which was used in decision
making. The difficulty lies in failure to recognize the nature of
the control demands. The actual time restriction on many decisions
is unknown. The real need for information is unknown. Therefore,

^Townsend, Robert, Up the Organization, Alfred A. Knopf,
p. 115, 1970.

57

under pressure from assumed time restrictions and in the fear of
being deluged with information, many decisions are inordinately
based on assumptions and intuition. It is an implied requirement
of management that they first manage their personal resources
which is their management energy. Next, they manage the organiza-
tional resources, which is their stated function. Management is an
encounter with uncertainty. No one should be satisfied with a 50%
probability of a correct decision, but neither should one expect 100%.
Each potential decision should have an established range of acceptable
risk as a function of time and the value of information. The commit-
ment decision should be made within this range of acceptable risk.
(See Figure 4 Appendix A)

Values vary with the nature of the resources controlled. Time
can be in years, or it can be in seconds. The contention with other
pending decisions is ever-present, so the actual management time
is not the same as the decision time. The immediate presentation
of an element of information, sometimes called "real time", has a
high cost. First, because of the processing technology to allow
immediate information and, second because the decision maker
requires it in perspective rather than as a shock. An increase in
time until presentation allows less expensive techniques. Information
presented in perspective allows more compressed and routine employ-
ment of management energy. There are economics of scale.
Increasing numbers of elements of information will not require an

58

equally increasing number of sources. Identification of information
values and time requirements for potential decisions in the control
of some resource will identify common requirements and minimum
time restrictions. Simultaneous capture and parallel transportation
will become possible. There are limits. The collection and storage
of higher quantities will reach the capacity of the current information
systems, beyond which additional management energy, new tech-
nologies, or both, will cause an incremental increase in cost. It
is the objective of information design to let the system present
information in quantities needed, when and where it can be fully
appreciated by the decision maker. The optimal system would impose
the least total cost by presenting the information when the decision
should be made within an acceptable range of risk. (See Figure 5
Appendix A)

E. TIME VERSUS VALUE

The management of information costs must be associated with
potential decisions. Each element of information will have its value
curve over time, reflecting the time required for its validation.
The combined value will develop the value of information curve for
the decision. The number of distinct elements must be carefully
controlled. A reduction in the number of elements will either reduce
cost or time. The information's sensitivity to time could reveal
improvement possibilities in value through tightening the update cycle

59

or in cost, through loosening the cycle. This technique of applying
value and cost relationships to information based upon a value of a
decision brings the economics of management into focus.

The analysis of decisions within management must be related to
the need to make the decision:

1. What is the value of the current decision point in time?

2. What is its sensitivity to time?

3. Does the information, as presented to the decision maker,
support the decision and create an acceptable risk?

4. Does the cost of the information exceed the value of the
decision?

5. Is there another point in the management structure where
the decision could be more economically made, consistent
with risk?

Consistently late decisions reduce management's flexibility to
allocate, or reallocate resources. This creates a pressure to
increase the available resources without a corresponding increase
in the market or mission. Figure 6 Appendix A, illustrates the
Planning, Programming, and Budgeting System (PPBS) as it might
be reflected as a "value of a decision" and impact upon resources.

Planning is generally accepted to be in the five to eight year
range, which is beyond the allocation of resources; however, it is
the establishment of a position. Programming is generally within
the one to five year range where interrelationships are being recognized

60

and alternatives are being reduced. Budgeting is an allocation
process which is followed by commitments. This is an illustration
of the "value of a decision" as an evolutionary process over about
ten years. Time is relative to the natural cycle of that which is
being managed. An air traffic control center might have "planning"
based on established schedules. "Programming" might be the
processing of flight plans. "Budgeting" however, would probably
have a natural cycle in seconds.

F. POSITION FOR THE FUTURE

In the final analysis, an evaluation of management must be
based on its impact upon resources. What is being controlled?
It is not management if decisions are not being made. It is not a
decision unless it involves the allocation or reallocation of resources.
Interestingly, the first decision, and one that is repeated throughout,
concerns the allocation of the personal resource, management energy.

In the 1960's management committed vast sums of money and
time to management information systems without regard for the
interpersonal manner in which the functions of management were
performed. Decisions were not recognized as evolutionary through
natural filtering. Today management information systems are
capable of fulfilling demands for information to the detriment of
the management who has not faced the "ecological" consideration
of his energy. In this decade management must be more concerned

61

with limiting the quantity of information, through improving the value
of lesser amounts. Time must be considered the dominant utility.
Time can only be countered through increasing the value of information
being presented. It has been recognized that the needed information
is available within the information system. If only one could ask the
proper questions. The key is to recognize the needs and sources
in advance. This acknowledges the importance of an integrated
information system. The technique places the information system
design alternatives with management rather than with the technician.
The identification of decisions can only be accomplished by those who
make them. Realistic appraisal of control requirements enables
value assignments to management decisions then value assessments
for the information needs to support the decision maker.

62

IV. CONCLUSION

A. TOTAL SYSTEMS APPROACH

A total management information system can best be described
as one which produces the many types of information products and
services which are required by the system users and contributors.
The processing portion of this definition includes the acquisition
and communication of data throughout the systems. The information
produced by the total MIS would include all of the information required
by the manager for his decision making process, i. e. , product in-
formation, financial information, personnel information, etc. .
It is theorized that this Utopian system does not exist at the present
time. There does exist however, serious doubt of the feasibility of
an organization being able to effectively integrate every information
subsystem required for the decision making process into a total MIS.
In the case of organizations which have integrated a few of the sub-
systems, these organizations were highly centralized and had relatively
short product lines with limited geographical concentration. Not-
withstanding the question of feasibility of achieving a total MIS, it
does appear to be highly advisable that the total MIS represents a
goal for which system designers should strive. If one accepts the
goal or ideal of total integrated systems, he should expect that
analysis must get to such a detailed level that common characteristics

63

can be found which allow meshing of new separated systems. The
dramatic analogy is the development of atomic energy. Success was
achieved only after theories showed how to identify subdivisions of
matter. At some critical subdivision it becomes possible to connect
the apparently quite separate elements into a continuous stream of
energy. The connection and conversion of energy in business informa.
tion systems may require even more analytical effort. It appears
that success in this field will be more valuable than that achieved
in the development of atomic energy. It is especially because of the
challenge to handle problems with more rigorous analysis that
mathematics will grow in business application.

B. FUTURE

On Tuesday evening, September 9, 1965, the largest power
failure in history blacked out all of New York City and some 80, 000
square miles of neighboring areas in which nearly 25 million people
live and work. The blackout lasted for three hours before partial
power was restored. It is awesome today to imagine what the con-
sequences would be if a computer blackout were to occur throughout
the world. Yet, in spite of our increasing dependency over the past
twenty years on computer technology, one continues to hear of a
"technology gap. " Instead of a "data famine" the technological issue
today is that computers haven't been able to do all that was expected
of them. If true, this is a dismal return for a $40 billion investment

64

in equipment. What went wrong? On one hand, computer manufac-
turers and the industry have been blamed for overselling, for not
developing the proper technology, and for not solving the users
problems. On the other hand, the users and managers have been
criticized for overbuying hardware, for misapplying an inert tech-
nology, for being in the last century, and for not exploiting modern
methods. There is some truth on both sides of the arguments.
With respect to the next decade and the correction of past
faults it is proposed that the demise of the present day data base
orientation as the dominant user model image in MIS development
will give rise to a shift back to an output orientation that is user-
dependent. The emphasis will be on basic decision processes and
problems of the specific organization and manager without regard to
the functional environment. Information structures will be developed
to solve a particular manager's problems; some of the structures
will be generalizable to other situations in broad outline.

The user model image that focuses on critical decision processes
for MIS development is only one aspect of the new technology. Allied
with the change in orientation will be a rise in the applications of
operations research and behavioral science in developing and implement-
ing the information structures. Empirical evidence suggests that:
1. Except for the most routine activities, managers actively

resist attempts (real or imagined) to erode their authority

base.

65

2. The executive's orientation is toward the "people" in the
organization, and his self concept is as an individual who
directs the activities of others.

3. There is relatively little understanding of upper manage-
ment decision processes.

Emerging information structures in the next ten years will increas-
ingly incorporate behavioral parameters in their design that reflect
organizational associations, leadership style, and management
attitudes as a means toward improving acceptance and effectiveness
at the user/system interface.

In conclusion, even with such technological breakthroughs
such as increased equipment capability and automatic file indexing,
management information systems will become progressively complex
as computer applications are extended to cover wider areas of
interest to management in the quest for the goal of a total MIS. It
is not difficult to perceive in the near future that management informa-
tion systems efficiently designed will provide not only factual data but
also statistical extrapolations, decision functions, and even the
calculated risks associated with alternative courses of action. It is
also anticipated that significant breakthrough will occur in the area
of generalized data base management systems. Eventually, when the
necessary technological advances have occurred, the system designer
will be able to develop a total computer based management information
system.

66

APPENDIX A

PR ED

CTE

RANGE OF
MANAGEMENT STRUCTURES

BULGING TRADITIONAL

PYRAMID

tpri ft O *
jUbLMd*

FIGURE I

67

full resource
utilization

RESOURCES REQUIRED

FOR
DECISION ir4?LeSMTATION

j.7

AVAILABLE

RESOURCES

MEAS4 RESOURCO UTILISATION

VALUE OF A DECISION

time

IMPACT ON "RESOURCE

FIGURE 6

68

VALUE

4 COST OF IKFOEKATXGN

VALUE OF
JL INFORMATION

ira&jss&samBa

tim

OPTIMIZING COST

FIGURE S

69

RAHGE OF ACCEPTABLE

RISE

DECISION

.iiiji mini i '•* VALvli OF

■-■/

/%//m

FOBSATIOH

7a

TIME

VALUE VS RISK

FIGURE 4

70

VALUE

VALUE OF A DECISION

VALUE OF

INFORMATION

Til

-?»

QUANTITY VS VALUE OF INFORMATION

FIGURE 3

71

FULL

RESOURCE

RESOURCES REQUIRED
FOR DECISION
IMPLEMENTATION

AVAILABLE
RESOURCES

VALUE

i'I«-i2

LIFE CYCLE OF A DECISION

FIGURE 2

72

BIBLIOGRAPHY

1. Hill; Henry W. , Wright, Jack H. , "Concept and Design of

Integrated Management Information Systems ", Data
Processing Yearbook, p. 112, 1964.

2. Kreithem, Alexander, "Total Information Systems ", Data

Processing Yearbook, p. 126, 1964.

3. Newman, S. M. , "Economic Justification- Factors Establishing

System Costs ", Information Retrieval Management, p. 117,
1962.

4. Lazzaro, Victor, Systems and Procedures, Prentice-Hall, 1959.

5. Bureau of the Budget, Policies on the Selection and Acquisition

of ADP Equipment, Circular A-54, October 1961.

6. U. S. General Accounting Office, Study of Financial Advantages

of Purchasing over Leasing of EDP Equipment in the Federal
Government, March 1963.

7. General Services Administration, FY 1971 Inventory of ADP

Equipment in the U. S. Government.

8. U. S. Government, House Committee on Post Office and Civil

Service ADP Use Report, 1968.

9. Department of the Air Force, ADP Inspection Report, p. 20,

1969.

10. Ignizio, J. P. , Shannon, R. E. , "Organization Structures in

the 1980's", Industrial Engineering, v. 3, no. 9, p. 46-50,
September 1971.

11. Simon, Herbert A. , "The Corporation: Will It Be Managed by

Machines?", Management and Corporation: 1985, McGraw-
Hill, 1961.

12. Anshen, M. , "The Manager and the Black Box", Harvard

Business Review, Nov. -Dec. , I960.

73

13. Argyris, Chris, "Management Information Systems : The

Challenge To Rationality and Emotionality", Management
Science, v. 17, no. 6, February 1971.

14. Hoos, Ida P., "When the Computer Takes Over the Office",

Harvard Business Review, July-August I960.

15. Ensign, R. B. , Braithwaite, T. B. , The Theory of the Value

of Information, paper prepared at the Department of Defense
Computer Institute, September 1971.

16. Ernst, Martin L. , "Computers Business, and Society",

Management Review, AMA, November 1970, V. 59, No. 11,
p. 12.

17. Drucker, Peter, "Thinking Ahead: The Potentials of Manage-

ment Science", Harvard Business Review, January 1959-

18. Allen, Douglas A. , Design and Coordination of Navy Manage-

ment Information Systems , MBA Thesis, George Washington
University, 1965.

19- Canning, R. , "Application Packages Revisited", EDP Analyzer,
July 1971.

20. Carnegie-Mellon University Management Sciences Research

Report No. 255, Management Information Systems Research,
by Charles H. Kriebel and Richard L. Van Horn, p. 12,
August 1971.

21. Analytics Inc. Report No. NR-196-103, An Investigation Into

Software Structures for Man/Machine Interactions, by
Richard M. Nicholson, February 1972.

22. Stanford Research Institute Report No. SRI- 103 1-1, Large

File Management Information Systems, by M. C. Pease
and A. Waksman, September 1971.

23. Logistics Management Institute Report No. LMI-69-14 Rev.

LMI 70-17, Implementation Plan for the Naval Air
Industrial Management Information System, June 1971.

24. Gallagher, James D. , Management Information Systems and

the Computer, American Management Association Inc. ,
1961.

74

INITIAL DISTRIBUTION LIST

No. Copies
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1. Defense Documentation Center
Cameron Station
Alexandria, Virginia 22314

2. Library, Code 0212
Naval Postgraduate School
Monterey, California 93940

3. Professor J. W. Creighton (55 Cf)
Department of Operations Research &

Administrative Sciences
Naval Postgraduate School
Monterey, California 93940

4. LT John David Cicio, SC, USN
USS TRUXTUN (DLGN 35)

FPO San Francisco, Calif. 96601

75

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. »>- _n#~rj»W u/hAn the o V0 1 a \ I report in clas sl(led)
of abstn.ft and indexing annotation must be entrred when tne o 1 , ,

2«. REPORT SECURITY CLASSIFICATION

Unclassified

2t>. CROUP

EPORT TITLE

Development of a Computer Based Management Information System

.ESCRIPTIVE NOTES (Typa of report andjnclusive dates)

Master's Thesis; December 1972

authORIS) (First name, middlo initial, latt name)

John D. Cicio

REPOR T DATE

December 1972

IONTRACT OR GRANT NO.

PROJEC T NO.

7fi. TOTAL NO. OF PAGES

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3. ABSTRACT

Management information is of critical importance in modern decision
making The role of the computer in this process is rapidly expanding
creating challenging goals for data processing specialists and functional
area specialists alike. A totally integrated computer based management
information system requires long term planning and design effort coupled
with detailed analysis of information system requirements. This paper
suggests a new relationship between the time value of information and
management decision making.

DD ,Fi"."..1473 lPAGE "

S/N OtOt -607-681 1

76

Unclassified

"Security Clarification

A-31408

Jnclassified

Security Classification

KEY WO ROI

LINK A

ROLE

Management Information System
Decision Making
Information Value
Computer System

.-. ..iu'wirw— WW
LINK B

DD,TvM..1473 <BACK>

S/N 0101-807-6821

77

Unclassified

Security Classification

A- 31 409

Thesis

C47883
c.l

-1 lljt^EJSr.

/

Cicio

Development of a
computer based manage-
ment information sys-
terr

17 OCT 74
26 JUL 76

I 5 N0V7R
3 MAR 77

21 MAR

8
o

22686
23930
24350

Thesis
C4?8c3
c.l

1^1255

Cicio

nevelopment of a

computer based manage-
ment information sys-
tem.

thesC47883

Development of a computer based manageme

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